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Let’s be clear about what is happening out there right now. We are in a retail recession. I don’t have a technical definition as economists have for the wider economy. But what is clear is the combination of excess supply and a consumer indebtedness, pressured household budgets plus the gravest political and economic uncertainty in modern times adds up to a disastrous end to the most challenging trading year UK retail has ever seen.

I’m not using the word disastrous lightly. I have chosen this word because of where I think it leaves us going into 2019. UK consumers don’t have anywhere near the money to rescue the “Golden Quarter” by going on a spending spree in the last few days of this year. The die is cast – to a degree it was cast halfway through November when Black Friday proved a damp squib and retail failed to get spending going in the weeks that followed. So where does this leave us?

Pre-Christmas discounting has become the norm in recent years but not on the scale we are now witnessing. Discounting has three component parts: the number of retailers on sale, the discounts being offered, and the proportion of stock involved. Across the industry, each of these three is higher than ever before. This is all symptomatic of an industry gripped by weakness, and panicking.

Most retailers will enter Q1 2019 with less cash than they need or want. Traditionally, some fat is required to help what are high fixed cost businesses to trade through the weakest quarter of the year. The majority will need to negotiate increased support from their banks and there will be some very difficult conversations. The massive question is just how far our financial institutions are prepared to further expose themselves? And how good are their tools to make these judgements?

Looking ahead, one thing is 100% guaranteed. 2019 is certain to be materially tougher. The industry entered 2018 in much stronger financial shape and despite that, look at the distress we have seen. Materially greater weakness will bring more casualties, starting early in the New Year. It’s going to be a very rough ride.

 ** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk

Today’s figures from Primark sent a message to the markets that should already have known. This is THE toughest retail market anyone has ever seen. No one is immune. Even the very best are impacted materially, and Primark is and remains, among the very best. The Golden Quarter began badly, with warm weather kicking in for most of the weeks leading up to Black Friday. Black Friday itself has progressively encouraged consumers to delay non-essential spending – a massive own goal I have written about extensively.

By mid-November and Black Friday, retailers’ cash positions were already adrift of where they needed to be. The event itself has turned out to be disappointing – lots of noise but failing to deliver the delayed spending from earlier in the Quarter. The three weeks since are always a challenge. Having made a huge song and dance about your amazing offers for Black Friday, how on earth do you persuade consumers of your great value after the event, probably back at full price or maybe with yet another “special” promotion?

Anecdotal evidence tells me that Christmas hasn’t really kicked in yet. The trajectory of trade is as usual. Q4 will still represent the peak for the year. But it will be lower than needed – everyone will suffer. This doesn’t mean there will not be winners but they will be a minority.

We don’t want to blame Brexit for too much. But the inescapable truth is that it is definitely having an impact. Retail remains a highly volume sensitive. A shift in the behaviour of even just 5% of shoppers will have a massive impact in trading economics and ignoring this in the mix is delusional.

Christmas 2018 will come very late, and fail to deliver the respite many in the industry need. Most retailers will enter Q1 2019 with less fat than needed to see them through the weakest trading period of the year. This will inevitably trigger stressful conversations with critical stakeholders. It’s going to be a bumpy ride.

** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk

This morning’s numbers from John Lewis department stores are very positive. After weeks of weak numbers, Black Friday seems to have been good for the Partnership. And the 2017 comps were very demanding too. But no one should start extrapolating to the wider market and thinking Black Friday (BF) was a raging success. Across the retail market for now, beware claims of apparent trading success. They are likely to be a form of virtual reality.

Analysing Black Friday independent of Christmas is a luxury only non-retailers can indulge in. The two are inextricably bound together. Christmas trading patterns in UK retail have changed materially since this most crazy of all US imports has kicked in. Sucking business out of December and into mid-November will obviously impact fundamentally trade over the Festive Season.

Then there are returns. A significant proportion of BF sales will be returned. This is only starting to happen this week, and it will continue. I do not believe any sensible evaluation of BF trading can be made until Christmas returns have fed through too, and the whole period can be seen. And then we into the season of Christmas Trading Statements, and we all know how imaginative they can be!

So while we can say well done to John Lewis for this week’s number, they should be treated with huge caution and not over thought. Across the retail market for now, beware claims of apparent trading success. They are likely to be a form of virtual reality.

** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk

As another Black Friday looms and the run in to Christmas beyond, we can already say that 2018 has been the toughest retail year anyone can remember. First, Black Friday. This is a promotion whose effectiveness is questionable even in the USA. But at least in the US it has a little logic, following Thanksgiving  with retail needing to get people spending again. Meanwhile, Christmas in the USA is traditionally a much less significant retail spending spike than here. Here, it comes along just as retailers need to start promoting their Christmas offers. It merely sucks spending forward at discounted prices, and therefore lower margins.

The UK adoption of Black Friday has been lemming-like. Do retailers discount regular stock and take the margin hit? Or do they buy special product (almost always lower margin and lower quality) and take the brand reputation hit? Stronger players have resisted it altogether and many that have succumbed have tried to limit the damage. However, retail is a business profoundly sensitive to YoY trading. Pressure from investors and stakeholders to deliver last year’s performance at the very least is intense. Right now is a great example of exactly that. The past 2/3 weeks trade have been awful – mild weather has hit business and a number of retailers who decided to opt out of Black Friday are already looking at cash flow and feeling the pressure. Some are having a last minute of mind, while others are wavering.

Then there is Christmas. In 35 years I have never known a Christmas trading period out of step with the preceding months. I said at the outset, this year has been the most challenging we have seen. Festive trading in 2017 and 2016 were both relatively positive, so the comps are quite demanding. As usual, many Christmas Trading Statements will be an exercise of selective reporting, economy with the truth and downright misleading, more so in non-foods than foods. But as ever, Christmas will not be cancelled. Earnings growth is finally starting to percolate through and will help mitigate growing political gloom and uncertainty. Weak sterling and fierce competition mean price inflation is trending down in both food and non-foods. I’m expecting both wings of the retail market to deliver spending growth around the 2.5% mark. So not a disaster but not enough to rescue the growing number of weaker players finding the intensity of trade and pace of change too quick.

** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk

It’s great to see some positive news from a retail business this morning. OK, so it’s Asos and some might say that online success is exactly the point – that traditional retail cannot hack it in the modern market. This misses the point.

In my opinion, the biggest problems faced by troubled retailers today are of their own making. They are the legacies of ill-conceived growth, achieved without understanding the consequences. Most of these ailing businesses have too many stores, over-sized stores, too many SKUs, too many customers…yes, there are some customers you don’t want because of the costs attached to serving them. This has led to the plethora of distressed retailers today who don’t know what and who they are, so neither do their customers.

Asos happens to be a digital retailer but on its own, tech is only ever a means to an end. It’s a conduit for the offer. And the Asos offer and how it is put together and managed is why today’s results are so strong. Asos is first and foremost an outstanding retailer – it happens to trade online. The business understands exactly what it is and refuses to dilute that by chasing incremental growth from beyond. It is focused at young fashion for twenty-somethings. It will neither stray far beyond that in other markets (so no homewares – a graveyard for so many fashion brands) or customers. While it does lots of business with older shoppers, it is not trying to chase them with dedicated older looks.

For as long as retail distress attracts focus on the symptoms and ignores the root causes, those companies are on borrowed time. If these businesses had no stores and the latest tech, their offers would still be irrelevant and competitively weak. A well-run, focused player like Asos can win huge chunks of market share, and there’s plenty more to come.

** We support retailers and stakeholders with strategic advice. If you think we can help, drop me a line richard@richardtalksretail.co.uk